The world’s largest food company has officially nabbed a £1 billion stronghold in the world’s second-largest economy.
Nestle has agreed to buy a 60 percent share of Chinese snack giant Hsu Fu Chi International, a bold move in its endeavour to boost sales in emerging economies.
Tan Han Meng of DMG & Partners told the BBC: "The investment is good for Nestle as Hsu Fu Chi has a very good distribution network in China and a decent brand profile with a 6 percent share of China's candy market.”
China’s fast-growing economy has seen the nation develop into one of the world’s largest consumer markets, with the development of a more affluent middle class. This has prompted leading global companies to try their luck in the Chinese market, as developed markets (the US and Europe) continue to slow.
Kepler Capital Markets analyst Jon Cox says the deal makes strategic sense as China will eventually become the biggest market for confectionery.
"It looks a bit expensive at 3.5 times sales at first glance but you are paying for the future growth prospect," he told Reuters.
The deal will need to be approved by China’s commerce ministry, Hsu Fu Chi shareholders and the Cayman Island courts, where Nestle is incorporated.
Earlier this year, Nestle also bought a 60 percent stake in China's Yinlu Food Groups Co., manufactures and distributes canned food products as well as producing apparel, outdoors equipment and other items.